The Future of Rural America

Governor Lindsey originally made this presentation at Renaissance
of Rural America, a spring conference sponsored by the Federal Reserve
Banks of Richmond, Atlanta, St. Louis and Dallas.

Today's typical American is of the urban or suburban variety. Ties to, and
therefore exposure to, rural America has declined substantially. Whereas
in 1880, a quarter of Americans lived in cities, by 1990 the percentage
had reversed itself so that only a quarter of Americans now live in rural
areas. When I was a child, it was not atypical for a city or suburban dweller
to have grandparents or others in the extended family living in rural America.
The songs my children listen to on Barney"Down on Grandpa's Farm"
and "Over the River and Through the Woods"have a direct meaning to
me which probably escapes them. Today, for most of us, exposure to rural
America involves recreation and escape: driving down country roads, enjoyment
of the wide open spaces, hunting in the forest, fishing the beautiful lakes
and rivers, trekking through the peaceful and quiet wilderness.

But sooner or later, the comment will come, mixed more often than not
with a tinge of both curiosity and wistfulnesshow do these folks
make a living out here? The direct personal experience of life in rural
America that comes from family ties is gone or most urbanites. But, that
loss of personal exposure has left many Americans with a longing that
goes beyond any distaste for urban living. The revolution in telecommunications
has actually allowed Americans to contemplate life and work in rural America
and to pose the question to themselves: Could I do it too?

Further, can the reality of life in the less populated regions of our
nation ever square with the lore and the lure? The lore involves stories
handed down from one generation to the next, many rooted in a cultural
view of America which involves the pioneer spirit, living off the land,
the fruits of hard work and respect for the power of nature. The lure
is, of course, the peace and scenic wonder of a region less developed
and the desire it creates in most of us to pursue that quintessential
American traditionreinventing ourselves. Together, the lore and
the lure have created some myths about rural America which I would like
to address.

The first myth is that agriculture and farming is the dominant way of
life in rural America. Although it is widely known that technological
advances have fundamentally changed the business of farming, replacing
labor with machinery to an enormous degree, the perception still remains
among many that farming and its attendant industries comprise a large
portion of the economic base in rural America. However, even in those
counties with a substantial agricultural base, less than 35 percent of
total employment is in farming and closely related industries while more
than 65 percent of employment is in non-agricultural industries. As of
1991, there were 1.6 million farm households, but 23 million rural households
which were not farm households. Thus, some 93 percent of rural American
households do not live on farms. In fact, not only is agriculture no longer
the major source of employment in rural America, it is no longer the major
source of income for the majority of farmers. So, if only 7 percent of
residents in non-metropolitan areas are employed in farming, what is everyone
else doing? Well, they work for government, they work in manufacturing,
construction and mining, in financial, trade and other services.

The myth about the dominance of farming feeds into a second, related,
myth about what constitutes a "rural" life style. Historically, of course,
most Americans did live on farms. In 1890, nearly 40 percent of all Americans
and more than 60 percent of rural Americans lived on farms. By 1990, there
were 20 million fewer people living on farms than a century before, but
27 million more people living in rural areas. In fact, this four-fold
increase in the non-farm rural population mirrors the four-fold increase
in the overall population of the United States. While farmers clearly
have declined as a fraction of the American population, rural residents
of small towns and others have maintained their share of the U.S. population.
Indeed, as Leo Meyer pointed out in a 1993 study, it is a net migration
from farm to town that tends to categorize rural population trends. That
should not surprise us. Rural Americans, like the rest of us, increasingly
work in and rely on the type of services that naturally entail some degree
of population concentrationsuch as retailing and health care.

In one important respect the rural economy is leading the national economyexposure
to world markets. We all know that a substantial share of American agricultural
production is exported. But, this sensitivity to international developments
also reflects the composition of the rural economy. Exporting and import-completing
industries like the manufacture of textiles for instance, are especially
important to rural economies. Moreover, industries that produce goods
for export, which account for about two-thirds of total U.S. exports,
currently account for a much larger share of employment in rural areas
than in urban areas. As America's exposure to international competitive
pressures grows in the years ahead, one can expect that the importance
of the international sector to rural America will increase.

One of the attractions of rural America to the urban and suburban prospective
immigrant is the lower level of housing costs. Indeed, housing costs represent
only 19 percent of the income of the typical rural resident compared with
23 percent of the typical urban resident. But it would be a mistake to
assume that all of this savings is necessarily translatable into lower
overall costs of living. The distances that exist between remote rural
areas and more densely populated ones can only be overcome at a cost.
Technology can overcome space but only at a price. This often translates
into lower levels of both nominal and real income in rural areas. The
nominal median income of families in non-metropolitan rural areas is one-
sixth lower than in urban areas. It is not clear that cost-of-living differences
can overcome this discrepancy.

Remoteness can lead to concentrations of economic distress. Nearly 23
percent of all non-metropolitan counties had high levels of poverty at
the beginning of the l990s compared with 4 percent of metropolitan counties.
Rural poverty tends to be less event specific, that is related to death
or poor health of the primary earner, and more related to long-established
factors such as the limited employment opportunities in the local economy,
according to a 1993 study by Calvin Beale.

Of course, one of our concerns today in considering the renaissance
of rural America is the access to credit as a part of the economic development
process. Some of the challenges faced in accessing credit stem from the
nature of rural areas. Julia Parzen noted in her 1992 book Credit Where
It's Due, that "operating costs are especially high for development lenders
that operate ... in rural areas because the deals they do are more distant
from each other and take more effort to monitor." Complicating this is
the desire for risk diversification, which often encourages rural banks
to invest in government securities or in other opportunities outside the
local market, rather than reinvesting more of their funds in the local
economy.

Overcoming rural financing challenges requires the same type of entrepreneurial
skill that is needed in depressed centers of America's urban areas and
that CRA [the Community Reinvestment Act] is intended to help. Typical
of this creativity is Ron Johnson of the Neighborhood Housing Services
of Dimmit County, Texas. The Dimmit County Neighborhood Housing Service
(NHS) has brought access to low-income housing to local residents. This
includes a single-family construction program providing home ownership
opportunities to 35 very low-income families in the county. But, the NHS
was also instrumental in recruiting a pecan shelling business that attracted
a substantial investment to an area where local government had been the
primary employer. The key was networking and partnership with both the
public and private sector.

Another CRA success in rural areas involves the Southern Development
Bancorporation. This Arkansas-based institution invests in a 32-county
region and uses both for-profit and non-profit approaches to projects.
The firm offers both financial and technical assistance. The latter can
be a key adjunct to success for many rural enterprises since access to
expertise may be among the most difficult challenges faced by the firm.
Southern Development Bancorporation is a rural analogue to the urban success
story with which much of the country is familiarthe South Shore
Bank of Chicago.

In this regard, I believe that our recent efforts at reforming the Community
Reinvestment Act (CRA) should prove useful. As you know, back on July
15, 1993, the president asked the four banking regulatory agencies to
revise the CRA regulations to make them more objective and focused on
performance. After receiving public comment from more than 2,000 individuals
and organizations on the first proposal, we released our second proposal
last September.

One key concern was to preserve, to a maximum extent, the strength of
the current system by allowing examiners flexibility in assessing bank
performance in light of local conditions as well as the capacity and constraints
of the individuals involved. Flexibility is the key both to past CRA successes
as well as future ones. As a rule, local solutions to local challenges
are more efficient than one-size-fits-all solutions from Washington.

In fact, rural areas may be the last bastion of the so-called character
loan. One such loan I heard about involves a Florida bank and a local
church. The church was in desperate need of funds and had always had trouble
getting loans. The bank president became familiar with the situation through
his contacts with the local NHS organization. He made the loan the church
needed to fix the roof and otherwise renovate the sanctuary. The loan
was made because the bank president had personal knowledge of the particular
situation and felt that a character loan was appropriate. He received
high marks from CRA examiners, but low ones from safety and soundness
examiners, who were not as flexible as perhaps they should have been.

This discussion of CRA brings to mind a third myththat urban areas
have nothing in common with rural ones. For while it is true that there
are many profound differences between urban and rural areas, there do
exist important similarities. Within distressed areas, both rural and
urban America may suffer from disinvestment. Capital can be scarce in
both places. In both, the need to find ways to combine resources and to
collaborate across program lines and across county lines, for that matter,
has never been more important.This is true not only for financial capital
but for human capital as well. It has been apparent to me in my travels
around the nation, that it is the skills and entrepreneurial drive of
individuals committed to their neighborhoods, towns and regions that ensures
successful and economically healthy communities. These folks can't do
the job without capital, but capital alone is not enough without the commitment
of talented people.

So, how does our society spread successful programs and share the energies
of talented people with all of the areas that need them? Twenty years
ago, the facts indicated the answer was, "Slowlyif at all." But
today, we can be much more optimistic. And one word says it alltechnology.

The fundamental challenge that exists in rural areas involves distance,
and the costs associated with overcoming that distance. In fact, those
regions of rural America located away from metropolitan areas that have
performed the best, economically speaking, were those areas that benefited
from what Emery Castle described in a 1993 paper as the three Rsrecreation,
retirement and residences.

While the three Rs will undoubtedly continue to be an important means
of economic development in rural areas, there exist other ways to alleviate
the distance problem. Certainly the advent of the telephone and the television
were instrumental in helping us move toward a solution. But it may be
the arrival of interactive technologies that will overcome the distance
problem for good. While all of the United States, and the world for that
matter, will benefit from the rapid advances in telecommunications technology,
I believe that the impact of technology on rural communities will provide
positive, powerful and long-reaching opportunities.

A glimpse of the future today is provided by satellite down-link dishes.
This technology already provides opportunities for teleconferences between
students in a small rural community and instructors located in the next
county or the next state. And just as this technology can link a student
with a needed teacher, it can bring community development specialists
from a community far away to the local planning board meeting. Computers
can be linked to national networks, allowing rural residents, perhaps
at their local community college or library, or at their own kitchen table,
access to knowledge and expertise that will enhance the quality of their
education, their personal productivity, the profitability of their business
and the overall quality of their lives.

Increasingly, we find that technology has the capacity to overcome space.
But just as distance increases costs, so too can technology. This cost
hurdle will undoubtedly be overcome by two forces: one, technologicalinnovation
tends to drive total costs down over timeand two, regional partnerships
can produce substantial economies of scale. Just as Wal-Mart locates its
stores so as to be accessible to a number of communities, so too will
communities discover the cost benefits of regional coalitions.

Ted Bradshaw noted in his 1993 article on multicommunity networks that
coalitions of small communities can overcome some of the challenges inherent
in rural life. For example, "housing rehabilitation programs can take
advantage of bulk purchases of materials or negotiate more advantageous
contracts with specialized providers. In many community projects the largest
single real cost is the administrative one of setting up and managing
the work that is being done. In joint projects this cost is shared and
the tasks often done better."

The transition of rural communities can be aided by "better telecommunications
and transportation [allowing] many types of businesses and firms to locate
quite specialized functions in rural communities ranging from back office
data processing or telephone customer service operations to specialized
high technology manufacturing plants [such as] computer software, publishing
and printing, agricultural machinery, sporting goods equipment, and mail-order
sales," Bradshaw says. My credit card bills and my catalogue sales receipts
from my Christmas shopping tell me that the rush of businesses to relocate
to rural areas of the country is already in full force.

I believe that the future of rural America will be a bright one. But
the transition that rural regions will undergo in the telecommunications
age will entail choices. As more city dwellers and suburbanites consider
the possibility of building their lives in rural areas, the challenges
created by development and economic and population growth will have to
be faced. There will be increased pressure on the original residents by
newcomers. Some areas attract retirees and aging baby boomers who want
amenities that don't exist and clamor for rules and structure where none
had existed before. The challenge of preserving the rural landscape and
the ambiance of small town life in this new age will be difficult. We
will all need to be flexible about our expectations.

However, by building coalitions and exploring the use of technology
to gain access to specialized knowledge and information that may not be
readily available locally, rural residents will be able to create strong
communities, linked not necessarily by geography but perhaps by fiber
optic cable. As America increasingly moves toward a service-oriented economy,
rural America in the telecommunications age is poised to take a seat up
front.